Value-based pricing: the wrong medicine for the nation?€¦ · medicines (Prostate Cancer UK, 2012 and 2013) (Sharp, Theodore, Mallender, 2012). To patients, the availability of

Value-based pricing: the wrong medicine for the nation?Barbara Arzymanow Julia Manning May 2013

About the authors

Barbara ArzymanowBarbara is a founding director of an independenthealthcare consultancy firm. She has been an investmentanalyst specialising in Pharmaceuticals for 25 years, priorto which she carried out academic medical research inuniversity laboratories. Her experience, obtained entirelyfrom outside the pharmaceutical industry, gives her aunique, political perspective independent of commerciallobbies. She has extensive experience in financing thebiotechnology industry, which is vital for the long-termstanding of medical research in the UK. She has alwaysbeen inspired by the scientific excellence within the UKand would like to see collaborations between industry, theNHS and academia strengthened

Julia Manning BSc(Hons) MCOptomJulia studied visual science at City University and becamea member of the College of Optometrists in 1991. Hercareer has included being a visiting lecturer in at CityUniversity, visiting clinician at the Royal Free Hospital,working with Primary Care Trusts and a Director of theUK Institute of Optometry. She also specialised indiabetes and founded Julia Manning Eyecare, a practicefor people with mental and physical disabilities. In 2006she established 2020health.org, an independent ThinkTank that seeks to both improve health and well-beingthrough research, evaluation, campaigning andrelationships. 2020health research publications havecovered alcohol, telehealth, employment, the economy,pricing of medicines, biotechology, NHS reform andfraud. Julia is a regular commentator in the media.

DisclaimerThis publication was not sponsored by any external organisation.The views expressed are those of the authors and they are responsiblefor the accuracy of the content. All rights reserved. No part of thispublication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means without the prior writtenpermission of the publisher.

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Value-based pricing: the wrong medicine for the nation?

Introduction

In countries where the cost of prescription medicines ismet wholly or partly from public funds, a system fornegotiating drug prices between the government andpharmaceutical sector must be in place. In order foreveryone to benefit from the buying power of the state, thearrangements need to apply nationally. In the UK, pricingis not a devolved power so whatever the government doesapplies as much in Cornwall as it does in Edinburgh.Normal free market forces are not a solution becausepatented medicines often have only one supplier.

Pharmaceuticals take many years of high expenditure todevelop. Typically several years of laboratory testing arecarried out on a potential new medicine before it is readyto be tested in humans. The testing in people generallythen takes five to ten years before the product is ready tobe made widely available for doctors to prescribe. Thetotal research and development (R&D) expenditure oneach successful drug incurred before launch is typicallybetween £20m and £300m. Only a small minority ofpotential new drugs in R&D makes it to the market. Atleast 100 and sometimes over 1000 drugs are usuallystudied in the laboratory for each one that is eventuallytested in people. On average about one drug eventuallyreaches the market for every ten that is tried in humans.

R&D expenditure per successful drug is much higher thanthe figure of £20m to £300m mentioned above owing tothe expenditure on drugs that fail because they turn outto be inferior to alternative products, they haveunacceptable side effects or competing R&D companiescome up with something sooner or better. R&D per drug,allowing for failures, is often in the region of £500m to£1bn and can be higher than this.

The cost of manufacturing most drugs is a smallproportion of the selling price. The main element in drugpricing is paying enough to give pharmaceuticalcompanies a reasonable return on their R&Dexpenditure. New drugs have been a major factor behindthe increased longevity and improved health in pastdecades. Very few new medicines have been developed

outside the pharmaceutical industry. The main compro-mise to be made when considering pricing is between theavailability of public money and a desire to continue toencourage drug companies to make the huge financialcommitment and take the high risks involved in thelengthy process of developing drugs.

The current UK drug pricing system has been in placefor over fifty years and is called the Pharmaceutical PriceRegulation Scheme (PPRS). The aim of the scheme,which has been regularly updated as circumstances havechanged, is to give each company a fair profit in the UKin relation to its R&D and other activities. The price ofindividual drugs is not controlled, but as companies aresubject to a cap on UK profit their total revenue from theNHS is limited. This freedom of pricing meanscompanies may have to reduce the cost of existing drugsto the NHS when they have a new product for which theywant to charge a premium. Total NHS expenditure onpharmaceuticals cannot therefore exceed the total of therevenue caps for all the companies.

The former Secretary of State for Health, Andrew Lansley,instigated radical plans to change the system for pricingnew drugs as from 2014. The new scheme, known asvalue-based pricing (VBP), is planned to apply only to newproducts. Established drugs will continue to be covered bythe PPRS. It is highly unusual to have two parallel systemsof pricing in place in any one country. Negotiations havebegun between the pharmaceutical industry and theGovernment on VBP and at present exactly how it wouldwork is still undecided. However, in theory, value-basedpricing can take into account the following:

1. The medical value of a drug to the patient by extending his life or improving his quality of life. A statistical average often has to be worked out because most drugs are more effective in some patients than others.

2. Cost savings (if any). For example, a drug may be able to cure patients who would otherwise require expensive hospital treatment.

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This paper tries to explore the potential impact of introducing an additional pricing scheme for new medicines onpatients, who are usually blissfully unaware of pricing negotiations. It takes the approach of asking what concernswould the public still have if a new system of “value-based pricing” were introduced, despite the negotiations andnew promises to include patients further in deliberations. In no way do we seek to disparage the hard workundertaken by researchers, health economists and civil servants who have been tasked with trying to make ‘value-based pricing’ (VBP) work. Our purpose is twofold: to ensure that people have as rapid access as possible to newmedicines in the UK, and to give the UK the best possible environment to continue to attract research anddevelopment across all life sciences.

3. Wider Societal Benefit (WSB) e.g. reducing the burden on carers or getting people back to work sooner, as opposed to the (current NICE) NHS and personal social care perspective.

VBP rewards those companies with important new drugsbeing launched. These are not the companies in mostdanger of cutting R&D in the UK, with its knock-oneffect on jobs, expertise and clinical trials. This paper looksat the risks involved in introducing VBP and asks whetherthey should be taken, particularly from the point of viewof patients.

Background to 2020health.org’s previouspublications on drug pricing

In September 2009, 2020health.org published theirinterim report on ‘value-based pricing’ (VBP), the newpricing mechanism for medicines described in the Officeof Fair Trading report of 2007. The concept of ‘value’,what it actually means and how VBP is perceived anddefined by those from the front-line of health to high levelstakeholders were explored in this first publication.

Our second report in 2010 examined both theopportunities and limitations of VBP as applied toinnovative medicines. It also sought to identify the barriersto be overcome if it is to be introduced in ways that wouldgenuinely enhance the UK’s overall approach to thepricing and sale of patented medicines. We worked closelywith Panos Kanavos of the London School of Economicsand his team as well as with David Taylor of LondonUniversity.

This paper tries to explore the potential impact ofintroducing a new, parallel pricing scheme on patients,who are usually blissfully unaware of pricing negotiations.It takes the approach of asking what concerns would thepublic still have if value-based pricing were introduced,despite the negotiations and new promises to includepatients further in deliberations. Our purpose is twofold:to ensure that people have as rapid access as possible tonew medicines in the UK, and to give the UK the bestpossible environment to attract research and development.

Patient concerns

1. The public could see the pricing of medicines made into a political issue.

The UK drug pricing system is not currently subject tohot political debate. Certainly, the PPRS (the currentPharmaceutical Price Regulation Scheme) means little tothe general public. Despite occasional criticism of howmuch the NHS (and therefore we, the taxpayer) pays formedicines, the actual proportion of the NHS budget spenton drugs has been falling in recent years and is nowaround 10%. We think introducing a controversial newpricing system could turn drug pricing into a politicalfootball and that criticism would soon mount. Just recentlywe have seen cancer charities express concerns over thelack of involvement of patients in discussions on access tomedicines (Prostate Cancer UK, 2012 and 2013) (Sharp,Theodore, Mallender, 2012).

To patients, the availability of medicines can be a matterof life or death. The Press and charities sympathise withthe feelings of those unable to secure the best treatmentfor their loved ones. To the pharmaceutical industry, UKdrug pricing is a very major factor in decisions aboutinvestment, job creation and employment security(Docteur, 2008). The industry sees drug pricing as themost important indicator as to how serious a country isabout offering encouragement. Historically UK drugpricing has not been a major political issue chiefly becausethe current system (the PPRS) has been guided by thesame principles for over 50 years with support from bothmajor parties (for most of this period) and with a goodtrack record of robust negotiations with industry (Sykes,2011). With the Government proposing to introducevalue-based pricing (VBP) in 2014 the political tempo isset to change, especially with a General Electionscheduled for 2015. VBP could work out like the Healthand Social Care Act: initial acceptance of the ideafollowed by growing disquiet as the uncertainties becomemore widely known. Patients could become politicalpawns, in the way that hospitals are now. Persons whosedrugs are deemed too costly for the NHS may have theircases picked up by the press, a political party or an MP.The opinion of the National Institute for ClinicalExcellence (NICE) will not offer any political protectionif at the time the pricing system is being radically changed.Political opponents may question whether the NHS isbeing comprehensive and universal.

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2. Patients would know that value is subjective

Patients and their carers can become distressed andfrustrated if they are denied medicine that they perceiveto be of benefit. The National Institute for ClinicalExcellence (NICE) has on occasion faced fierce criticismfor delaying and refusing access to some new medicines.Sometimes NICE has had a genuine, well founded casefor preventing access, but at other times they have beenchallenged by patient groups and health professionals whofeel that the wrong decision has been made. An importantexample of this was the successful challenge to NICE’srestrictive decision on the drug Lucentis for wet-maculardegeneration, a severe, sudden cause of blindness whichneeds rapid intervention.

The principle of “no decision about me without me”applies as much to drugs as to any other form of medicalintervention. Drugs typically offer better value for moneythan labour-intensive treatments. Further complexityarises from the great variation in the circumstances ofpatients, their responses (Magid, 2009) to treatment andtheir own opinions as to what side effects and symptomsare tolerable – in other words, what is ultimately of valueto them. The worth of a drug cannot be reduced to asingle number and to suggest otherwise is fudging theissues. A host of questions need to be answered (Wishart,2009). Does the life of a new-born baby have the samevalue as that of a senior businessman? How much moreis an expensive drug worth to a patient who is allergic tocheaper alternatives than to a patient for whom thecheaper products would be just as good? Does not thequality of life of a patient receiving long-term treatmentwith a drug depend on what side effects he as anindividual experiences? Value-based pricing sounds likean excellent idea with a well-researched methodology. Onfurther examination the cracks begin to appear. Theapparent sophistication of value-based pricingcalculations cannot avoid an avalanche of problemsbecause the real concerns of patients, doctors and carersare only hidden from view.

3. Patients would have valid concerns about fairness.

We anticipate that doctors and patients will regard manyaspects of value-based pricing as unfair. The complexityand opacity of the process (in a climate that promotestransparency) will fuel concerns about whether VBP willbe used to ration the availability of drugs, rather than tofind affordable ways of paying for them. The proposedsystem seems to be directed at preventing the use of drugswith prices above their calculated medical value, eventhough this calculation is largely arbitrary. It is importantto remember that decisions to treat a condition with a

particular drug are not simply based on the drug’s medicaleffectiveness, but also on how effective it is compared tothe price. The original motivation behind theestablishment of NICE was to remove from Governmentthe difficult decision making on whether the NHS shoulduse a particular drug or device, taking into account otherdemands on its budget.

Many drugs available from several companies (e.g. afterpatent expiry) will have prices driven down by competitionto levels well below their true value. VBP would aim tostop any drugs being priced at above their perceived value.With some drugs priced below value and none above,VBP has the perverse effect that the NHS is bound to payless for drugs in total than their perceived full value. Thisfact may seem unfair to patients denied expensive drugs.VBP obstructs the use of expensive drugs but puts nothingback in the pot when it gets drugs cheaply.

Patients will also question the fairness of being denied anexpensive drug if they have called on the NHS very littlein the past as a result of a healthy lifestyle, or if denial oftreatment would result in being unable to functionproperly e.g. a mother looking after young children.People may feel that the Government does not valueresponsible behaviour. Patients may also consider unfaira lack of products approved and available abroad. Anydelays in making a drug available to patients as a result ofslow decision taking will also be upsetting (Richards,2010). An example would be not responding promptly tonew robust evidence supporting a change in the value-based price that a product can justify. Challenges to VBPdecisions could also come under the auspices of theEquality Act (2010).

4. Patients know that value alone cannot determine drug prices because commercial competition imposes a ceiling

The price of a drug cannot reflect value throughout itscommercial life because prices are affected by commercialfactors independent of value e.g. patent expiries and timelags between new evidence and price changes (Adams,2011). While a patent is in place, pharmaceuticalcompanies have the opportunity to obtain a financialreturn from research and development costs for amedicine; but once the patent expires, copies can be madeby other companies and the price usually drops sharply.The medicine is no less valuable to the patients who useit, but the price no longer represents the true value, whichin theory should remain the same until a better medicinecomes on the market for the same condition.

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When James Dyson launched his first vacuum cleaner, itwas more than three times the average price of othermodels, but it was also without comparison (Kelly, 2011).Bagless, light and super-efficient, it became hugelypopular and the price has remained high because peoplevalue the product. Dyson still has 23% of the vacuumcleaner market in the USA; the market would only paymore for something even more effective, and competitionkeeps the price accessible. The price the NHS pays for amedicine has not remained static. Even before a drug goesoff-patent, if the company develops another drug it mayreduce the price of its other products as the existing PPRSputs a cap on the profits a pharmaceutical company canmake.

5. The public would soon realise that value-based pricing cannot easily be applied to the most important medical breakthroughs

There is a lack of intellectual honesty (Michel and Pfaffli,2012) in the value-based pricing system, which isparticularly apparent when considering how any trulyexceptional discoveries with a major impact on mankindwould be priced. Patients know that there is a limit to whata drug company can reasonably demand for a singleproduct, not only because of commercial competition butalso because of what would happen if there was adramatic, medical breakthrough. An example would be acure for cancer, if ever one turns out to be feasible.Whatever the VBP pricing system concluded, such a drugwould have a true value well above £5 billion per annum(Geoge, 2008) in the UK, because this is the amount thatthe NHS currently spends treating cancer patients. Arespected American study (Morphy and Topel, 2006) hassuggested that the capital worth (present value) of a curefor cancer in the USA alone would be about $50 trillion($50,000 billion). This enormous sum of moneyrepresents approximately the annual income of theworld’s entire population. The Government wouldobviously not pay the true value of the product but wouldinstead operate a system that would pay out much less.Drugs from history where similar considerations wouldhave applied include smallpox vaccine and the first widelyused penicillin. We therefore think that doctors, charitiesand the media may see value-based pricing not assomething in which the Government believes, but ratheras a way of hiding behind jargon and intellectualdishonesty in order to justify what will increasingly feellike largely arbitrary rationing of expensive drugs.

6. Questions could be asked about the logical inconsistency with value-based pricing and pricing methods in other industries

The public does not expect goods and services to be pricedon the basis of value, or in other words, costs or sufferingthat have been averted. For example, no plumber wouldfix his prices according to the damage that would result ifhe declined to attend an emergency. If in response to aleaking bath a plumber said, “Well, if I don’t come theleaking will cause the floor to give way, the ceiling tocollapse and the kitchen below to be damaged so that’s£7,000, thank you!”, most of us would be outraged. Inmost industries prices are determined by: supply anddemand (Davies, 2012); by looking at the chargingstructure of other suppliers; by adding a reasonable mark-up to costs; or by following a formula in a contract. Thelast of these approaches is essentially what we have nowin the PPRS, which is much closer to normal practice inother industries than VBP. The PPRS formula is designedto give higher financial returns to companies that helpfulfil public policy objectives. The formula could beadapted to take a more up-to-date view of societal andmedical policies without changing the basic PPRSapproach. The logical consequences of pure value-basedpricing seem to be more like paying a plumber based onthe damage that he prevents.

7. We may be an Island but we are not cut off from global reality

Booze cruises used to be commonplace. Knowing nicewines and beer were cheaper in France meant that manypeople used to cross the channel to stock up for Christmasor a party. As an optional commodity, people didn’t mind.But imagine if that’s what you had to do to get a newmedicine or treatment? Companies in the UK operateelsewhere in the world and commercial realities limit theGovernment’s flexibility in fixing individual drug prices.None of us want to see valuable NHS funds wasted. If adrug is priced much more highly in the UK than in otherEU countries, wholesalers supplying UK pharmacies willbuy the drug more cheaply abroad (European Union,2003; MHRA, 2012). The benefit of the high price willlargely go to wholesalers as they sell on the products topharmacies, rather than going to the originator of theproduct. NHS money would thus be wasted.

On the other hand, if the UK price is much lower thanelsewhere in Europe, pharmaceutical companies maydecline to supply the UK rather than have their EUpricing structure eroded by cheap imports from the UK.As a result, valuable medicines may be unavailable in theUK or subject to supply shortages, leading to distress and

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health risks among patients. It is a fine line, and changesin exchange rates mean that prices can fluctuate withoutany action by pharmaceutical companies. Owing to thecurrent system of free-pricing in the UK, companies arewell disposed to launching their products in the UK first.This is not only of potential advantage to patients(depending on whether the NHS makes the drugavailable) but has also resulted in the UK becoming aprice reference point for about 40% of other countriesglobally. To lose this advantage could mean that patientsin the UK have to wait longer to access new medicines asthey are launched first elsewhere; this would achieve theexact opposite of what is intended with VBP.

8. People could think an average price rather unfair: one product can have many uses and dosage regimes which are of different ‘value’ to different people

Many drugs can be used to treat more than one illness.Some have different degrees of effectiveness when used atdifferent stages of a disease and others require doses thatvary between patients, or work best when given alongsideother drugs. All these factors contribute to productshaving different values under different circumstances.However, a drug cannot have more than one price for thesame formulation under the dispensing arrangements inforce in the UK. Changing these arrangements would becostly, reduce patient confidentiality (by, for example,including details of each patient’s illness on hisprescription), increase workload and bureaucracy byrequiring pharmacies to keep complex records, add to thetime taken for doctors to write prescriptions and haveimplications for the freedom of pharmacies to purchasedrugs from the cheapest available source.

The ‘solution’ of having an average price for a drug wouldbe highly problematical in a VBP setting. Imagine a drugbeing of low efficacy for one condition but having a highprice owing to its radical efficacy in another condition.Under the PPRS companies can choose the price that bestfits the circumstances and whatever is decided the totalcost of the company’s drugs to the NHS will be largelyunaffected. Under VBP companies are meant to berewarded for meeting an important unmet medical needthrough a higher price for the new drug. If the same drughas another use where the benefits are low there is atpresent no way of preventing doctors from prescribing theexpensive product in circumstances where the benefits topatients do not justify the expense. Again the logic of VBPbreaks down.

9. We shouldn’t claim that we can truly know value when we can’t

Despite an extensive literature about such esoteric subjectsas QALYs (Weinstein, Torrance and McGuire, 2008;Schlander, 2009; Mortimer and Segal, 2007) (quality-adjusted life years) and ICERs (incrementalcost-effectiveness ratios), valuing a drug is just not a precisescience. Perfectly reasonable estimates for the value of aproduct can easily vary by a factor of two or three. Inaddition, no pricing guidelines can possibly take intoaccount every possible dose (O’ Sullivan, undated) or setof medical circumstances that could apply in an individualpatient. Who can truly know what the quality of anotherperson’s life is? How can anyone claim to have the onetrue answer about the order in which a list of drugs rankby value if the products treat completely differentcomplaints? Yet value-based pricing requires, in effect,answers to questions about the relative value of drugs totreat conditions as varied as severe attacks of migraine,vomiting in cancer patients, movement difficulties inParkinson’s disease sufferers and sexual dysfunction. Thenecessary comparisons are bound to depend on personalopinions.

A view does not become correct just because it is backedby one committee of experts, processed mathematicallyin a particular way and supported by academics who earna living from perpetuating valuation methodologies.Future decisions over the value of drugs by NICE willalways be controversial (Erntoft, 2010; Raftery, 2006;Wagstaff, 2008; Devlin and Parkin, 2003; Hoey, 2007).People who see the suffering, incapacity or death of lovedones or who work for charities that help patients withparticular illnesses are not necessarily going to see thevalue of what a drug does in the same way as NICE. Theproblem is not the skills base of NICE; the organisationis respected globally as having arguably the most expertiseof any operation in its field. The problem is that valuingdrugs is not a science capable of precision or consensusconclusions. No brief to NICE can change this fact, andthere is no solution that has yet emerged that seems toimprove on NICE’s approach of ‘informed deliberation’.It is also true that NICE lacks the manpower to carry outa full commercial evaluation of all new drugs itselfwithout risking inappropriate delays to patients, again,something that VBP was seeking to avoid. If, on the otherhand, NICE contracts work out, the organisation’sreputation for independence of the type expected from agovernment agency or regulator may be compromised.

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10. The public have been told that politicians are staying out of the NHS, so this change could seem like hypocritical interference

Most people have never heard of the PPRS, partlybecause they do not work within the pharmaceuticalsector, but also because it has been a remarkably successfulprocess adhered to and refined by successive governments.Bringing wholesale change to pricing introduces verysignificant risks.

The contributions of James Raftery to BMJ Group blogsin recent months discuss a range of difficult questionsconcerning equality and the allocation of resourcesbetween age groups, the sexes and diseases. Such issuesare politically sensitive.

The subjective element in value judgements gives toomuch scope for political interference by a future hostilegovernment. Patients do not want the availability ofmedicines to be subject to the whims of politicians(Persson, 2011; Jack, 2011). The public want doctors tochoose drugs with as little rationing as is consistent withan affordable system.

11. Patients could mistake value-based pricing for a commitment to make more medicines available

A value-based pricing system in no way guarantees thatthe Government will be prepared to make more productsavailable. We must not mislead patients into thinking thatvalue-based pricing implies a willingness to pay for alldrugs. On the contrary, it is a drug rationing system. Thethinking behind VBP was always to make more medicinesavailable, and sooner, but so far we can’t see how thissystem could deliver that.

12. Losing ‘patient access schemes’ will reduce not improve access to medicines

The NHS needs flexibility in handling negotiations whena drug company is unwilling to accept the price offered,and this has historically been achieved through ‘patientaccess schemes’. These are arrangements between theNHS (or Department of Health) and drug companiesunder which a specially low price is privately negotiatedfor the supply of a drug when used under definedcircumstances in a way that does not make the productgenerally available at that price to the NHS. The drugcompany may also offer a rebate to the NHS in respectof NHS patients who do not respond to the product orwho satisfy other criteria. Pharmaceutical companies willnot offer an abnormally low price for the whole UK

market because, as discussed above, wholesalers wouldexport the product cheaply from the UK and soundermine the EU price structure. In addition, manycountries use the UK as a “reference” market. Theyeffectively determine their prices by reference to those inthe UK.

The only way around this impasse in a value-basedpricing environment is for a deal to be struck between theGovernment and the pharmaceutical company withterms that do not permit wholesalers to participate andobtain the product to export cheaply to other countries.Private deals between health service providers and drugcompanies are normal practice internationally. A purevalue-based pricing system that lacks flexibility for theGovernment to negotiate patient access schemes privatelywould be a backward step. Any pricing scheme requiringtotal transparency over all decisions will also reduce thewillingness of drug companies to cooperate.

13. Value-based pricing appears to be neither in the patient interest nor the national interest

UK drug prices (O’Neill, 2012) and drug spending percapita have traditionally been below the average inadvanced countries. The money saved has helped withother spending priorities of benefit to patients in the NHS.At the same time the pharmaceutical industry has enjoyedbetter relationships with successive UK governments thanin the case of many other countries. In part this is becauseUK doctors are often better informed about cost-effectiveprescribing than some foreign counterparts. This positionmust continue through appropriate continuousprofessional development. However, the main reason forthe relatively attractive (low) UK drug prices is that theexisting pricing system (Whitehead, 2011) gives drugcompanies a structure that they value for other reasons.The pharmaceutical industry and successive UKgovernments have been able to agree in the past on certainpolicies to be supported through the pricing system. Thesehave included: helping drug companies to afford tocontinue research and development (R&D) during barrenperiods; making the UK an attractive base for R&D andproduction; and allowing drug companies to fix their ownprices on individual drugs with the controls effectivelyrelating to the average price across a company’s entireproduct range.

Support for pricing priorities helpful to thepharmaceutical industry has in the past enabled the UKto achieve very fair drug prices as a part of the overallpackage. Pricing and tax policies are important inencouraging R&D and investment in the UK, withbenefits to jobs and the standing of UK science.

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Attempting to support R&D by sending messages aboutpreferred types of innovation via the prices awarded toindividual drugs will not work. It is tempting to believethat high prices for drugs favoured under VBP willencourage R&D directed at the discovery of suchproducts. In fact, drug companies are already fully awareof the benefits of innovative R&D. The UK is only 3%of the world drug market and R&D decisions arenecessarily taken on a global basis. We can encouragecompanies to base R&D in the UK, but this becomesharder if the Government tries to influence the nature ofR&D politically. A good pricing system shouldaccommodate all but the most absurdly expensive newdrugs out of a sensible overall budget, essentially bylowering the price of older drugs and educating doctorsabout cost-effective prescribing.

Solutions

The con!dence of patients and the future of medicineare more important than words

Whilst we acknowledge that the Government has justagreed to more consideration being given to patient groupperspectives in the development of VBP, there are only10 months before it is supposed to be introduced. Wetherefore urge the government to consider the followingsolutions to avoid the drug pricing pitfalls described andto give the greatest chance of achieving appropriate policyobjectives.

1. Continue allowing drug companies to fix their own prices for individual drugs with new controls operating at the higher level of the entire cost of each company’s drugs to the NHS. This policy would be implemented in such a way as to ensure that the total NHS drug sales of all companies would be acceptable and affordable. The PPRS achieves this aim mainly by a profit cap but the same objective could be achieved in other ways e.g. a revenue cap, a trading margin cap.

2. Companies would commit to enabling access to their products under the NHS except in extreme cases by adjusting their prices appropriately, for example by lowering the price of older drugs by enough to accommodate high enough prices for new products.

3. Provide a fair financial return to all companies, taking into account the broader need to control government spending, the benefit to the UK economy from high-technology investment and the desirability of R&D to ensure that medicine continues to advance. The aim is not to give fabulous returns to highly profitable companies that have recently launched block-buster drugs, but rather to encourage all R&D. Pharmaceutical R&D involves not only great skill, time and dedication over many years but also a large element of luck. All pharmaceutical companies have barren periods in R&D, during which times a supportive pricing system is particularly important to help encourage them to continue. A pricing system should also encourage companies not to overlook rarer diseases in search of drugs for more lucrative markets, for example, by offering a bonus for drugs treating less common conditions.

4. Encourage patient access schemes to help make drugs available to patients on the NHS at a cost that the drug industry would otherwise find unacceptably low.

5. The launch of drugs should not be held up to the detriment of patients by delays caused by pricing negotiations or related bureaucracy or understaffing.

6. Discussions on how the cost impact of health technologies might be extended to reflect a “wider social benefits” or WSBs, as opposed to the (current NICE) NHS and personal social care perspectives should continue. This is a hard nut to crack but there are no reasons why debate should not continue with patients groups with a view to introducing a clearer ‘value’ component in time into the PPRS.

A strategic system that embraces the above six points willreward the NHS with value for money as well as supportother policy objectives. The UK would continue to havea smaller drug bill per capita than most other advancedcountries. The lowest risk way forward would be toupdate the PPRS rather than to create a value-based scheme for new drugs that seems to us tobe intrinsically flawed.

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Value-based pricing: the wrong medicine for the nation?May 2013